It’s the Economy, Stupid

James Carville’s memorable 1992 campaign quip of ‘It’s the economy, stupid’ was prescient then and will be prescient again in 2024.” – The Lonely Realist

Americans vote their wallets. Whether or not they’re enamored with the incumbent, they’ll re-elect him if they believe he capably managed the economy …, and they’ll toss him out and vote in the challenger if their pocketbooks have suffered. Recent two-term Presidents Clinton, Bush2 and Obama were blessed with strong economies at re-election time. Presidents Bush1 and Trump were not …, and President Biden therefore understands that he needs America to experience an economically uplifting 2024.

Economic policy accordingly has been the Biden Administration’s priority. The Administration understands that, absent a Joe Biden health issue, an apocalypse, or an alien invasion, a healthy American economy is the key to a second term. Maintaining a buoyant economy motivated President Biden’s canny re-appointment of Republican Jay Powell as Federal Reserve Chair and led to the Fed’s successful easing of inflationary pressures with resulting economic growth and increased employment. “Bidenomics” has been the chosen catch-phrase. It drove enactment of the American Rescue Plan, the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act. President Biden has attempted to supplement these broad economic subsidies legislative accomplishments with Executive Orders targeting student loan forgiveness, collective union action and increased benefits for the poor. The goal has been to persuade voters that the Biden Administration is pursuing young Americans’ middle America’s best interests, with Bidenomics as its feel-good economic policy prescription: “First, making smart investments in America. Second, educating and empowering American workers to grow the middle class. And third, promoting competition to lower costs to help small businesses.” Despite the vote-buying intent, it is impossible to ignore America’s strong economic growth, its low unemployment rate, and its low (and lowering) rate of inflation.

Whether the apparent success of Bidenomics can continue is a more challenging question, the answer to which will determine whether the next President is named Gavin Gretchen Joe Biden or Ron Vivek Donald Trump. The harsh reality for President Biden is that, although a recent Reuters/Ipsos poll confirms that the economy remains Americans’ top concern, Americans are unimpressed with the performance of Bidenomics. A Monmouth University poll shows that only 34% of Americans approve of President Biden’s handling of inflation, with 47% approving and 48% disapproving of his handling of jobs and unemployment. The latest ABC News/Washington Post poll similarly finds that 44% of Americans believe they are worse off financially under the Biden presidency than they were under the Trump presidency, the most for any president in ABC/Post polls since 1986, and that only 37% approve of Biden’s job performance with 56% disapproving. In addition, a September Associated Press poll found that only 36% of Americans approve of Biden’s handling of the economy. If these polling numbers are accurate and if they continue, the President’s re-election prospects look dim.

But they’re not. The fact is that polling numbers 13 months in advance of an election are not predictive. The impact of COVID shutdowns and dislocations coupled with hand-to-hand political combat and the shocking increase in inflation in 2021 and 2022 have been destabilizing. Americans have not yet recovered. Yet inflation now is below 4% with the Fed targeting 2%. Interest income for older Americans has increased, which in time will lead to higher ratings for Bidenomics. With an unprecedentedly low unemployment rate of 3.8% and the addition of 336,000 jobs in September, it would take a significant economic shock for the current level of voter dissatisfaction to continue.

Inflation nevertheless flows from expectations. If Americans believe that prices will go up, Americans will buy now and push-up prices in a self-reinforcing spiral. Those perceptions today are being magnified by the media’s focus on extremist political posturing and sensationalist reporting of mass urban thievery, union unrest, and the heinous consequences of government budget showdowns. In such politically charged times, perceptions of inflation – and therefore expectations – are driven more by ideology than by the realities of supply and demand. University of Michigan polling, the benchmark for consumer confidence surveying, shows that Republicans are bracing for inflation of 5% (far higher than the most pessimistic projection from the Fed’s Governors), while Democrats believe that inflationary pressures will ease to 2% (putting them at the optimistic end of Fed projections). The question is how much these disparate perceptions will affect actual supply and demand over the next year …, and thereby change voter perceptions. No one knows the answer.

To what extent can President Biden engineer good economic times? With centralized economic management a tricky business, the consensus is that the Biden Administration has used all of its economic bullets and is out of ammunition. Many economists accordingly are predicting a recession in 2024 – though they also incorrectly predicted one in 2023 – based on a yield curve that has been inverted since June 2022 (and now is dis-inverting, often an ominous sign), budget deadlocks, rising oil prices, bank failures, substantial portfolio losses by insurance companies and pension funds, highly-leveraged private equity, venture capital and commercial real estate, a burgeoning trade war between America and China, and increasing hostilities between the U.S.-led West and the Axis of the Sanctioned. They are concerned that the Fed is walking a tightrope in forcing America’s highly-leveraged economy to deleverage at a time when government debt is at historically-high levels (a subject previously discussed here), America’s social fabric is fraying torn, America’s government is paralyzed, and the country is experiencing unprecedented demographic change and a revolution in technology and biotechnology.

A lot could go wrong – and a lot could go right – between now and November 2024. The health profiles of both Joe Biden and Donald Trump are among the many wild cards, as are “black swan” events and alien invasions. Nevertheless, with the goal of avoiding recession as its re-election priority, the Biden Administration can be counted on to do whatever it takes to raise perceptions of economic well-being …, and for the Republican Party to do whatever it takes to puncture that perception. The political games are only beginning.

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